Insurer and pensions provider Prudential has warned advisers over fixed-term annuity products, which has witnessed a slew of launches in the last few months, saying the products are ‘bizarrely’ regulated by drawdown rules and clients may not understand risk suitability of the products.
Fixed-term annuity products have been launched by providers such as Living Time, LV= and Just Retirement.
Confusion could be created about the products since they are ‘bizarrely’ regulated by the new draw-down income rules, said Vince Smith-Hughes, head of business development at Prudential.
“The concern is that people hear annuity and they think there is an income for life there. I think advisers need to make absolutely sure that when they give advice on these they take into account the things they would normally do when they give advice on a drawdown”, he said.
“There is a danger because people think a fixed term annuity is a simple product and that it is an annuity product. I have got no problem with the product itself and I can see uses for it but people need to know what they are buying”, he warned.
The problem with the new products was not of mis-selling, but the lack of understanding of the risks associated with the products, said Smith-Hughes.
“It is a simpler sale than it is under a drawdown so they need to be making sure they are covering off all the angles in their suitability letters. There is a whole realm of things advisers need to talk about in their suitability letters and consider and that is obviously based on the risks inherent in drawdown”, he said.
The products have also been wrongly named, he complained adding: “If you called them fixed term drawdowns that would almost be a better explanation”.
However, “fundamentally fixed term annuities are under the draw down rules”, he clarified.
Prudential currently does not offer fixed-term annuities, but Mr. Smith-Hughes did not rule out the launching the product in future.